R. Kumar, B.Com. MBA
Introduction:-
It is commonly known that levy of excise duty arises on manufacture and the duty is collected on removal of goods from the factory. However, all manufacturing process does not attract levy of excise duty unless some basic conditions are met. An item will be subject to excise duty if the following four basic conditions are met i.e., 1.) The item is a good under Central Excise. 2.) The goods must be excisable i.e. it should be covered by Central Excise Tariff. 3.) The goods must be manufactured and 4.) Such manufacture or production must be in India.
It will be interesting to know it even if the rate of duty is nil, the goods can still be excisable, if they are manufactured and are marketable goods. “Nil rate of duty is also a rate of duty” relying on Supreme Court decisions on the cases of Wallace Flour Mills Vs. CCE [(1989) 44-ELT-598 (SC)] and Vazir Sultan Tobacco Vs. CCE [(1996) 82-ELT-260 (Tri-Del)]. In fact, the Supreme Court in the case of Associated Cement Co. Ltd Vs. Commissioner of Customs [(2001) 128-ELT-21 (SC)] has reiterated that “if by virtue of an exemption notification the rate of duty was reduced to nil, the goods specified in the Tariff Act would still be regarded as excisable goods on which nil rate of duty was payable”. Hence, the Supreme Court has not categorically stated that goods with a nil tariff rate can also be considered “excisable goods”.
We will discuss the same in more details in coming paras.
Regulatory Aspect:-
Sec. 2(d) of the Central Excise Act, 1944 defines “excisable goods” as goods specified in the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt. An explanation to Sec. 2(d) of the Central Excise Act, 1944 states that the expression “goods”, for purpose of the said clause, includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.
The market term has been explain with the help of under mention Court cases.
Plasmac Machine Manufacturing (P) Ltd Vs. CCE [(1991) 51-ELT-161 (SC)] had expressed that for an article to be called as goods, these must be known in the market as much as these must be capable of being sold in the markets as goods. Actual sale in the market is not necessary, user in captive consumption is not determinative but the article must be capable of being sold in the market or known in the market as goods. That would be necessary.
Indian Cable Co. Ltd Vs. CCE [(1994) 74-ELT-22(SC)] has expressed that marketabilityis a decisive test for durability. It only means “saleable” or “suitable for sale”, It need not be, in fact, marketed. The article should be capable of being sold or being sold to consumers in the market, as it is without anything more. In the absence of a finding, that the goods are “marketable”, i.e. saleable or suitable for sale, it could not be said to be a goods, which may be subject to excisability.
Goods which are not listed in Tariff or goods which are mentioned in Tariff, but the column of the rate of duty is blank a non-excisable goods, e.g. water (they is no entry in tariff). Excise law is not applicable on non-excisable goods.
“Non-dutiable goods” are excisable goods listed in Excise Tariff. Excise law is applicable to them, but they are not liable to excise duty. Non dutiable goods may be of two types:
(i) Nil duty goods- tariff rate for such goods is nil, and
(ii) Exempted goods-100% exemption is available under Sec.5A, for such goods.
Sec.3 and sub-section (a) which says that the rate prescribed in the tariff for excisable goods will be levied and collected. So the rate does not determine excisability. This means that in order to be excisable, the goods should be (i) manufactured, (ii) marketable (iii) appearing in the tariff and (iv)subject to duty of excise. All the conditions must be satisfied. Regarding (i) (ii) and (iii) there is no controversy here. Regarding (iv) that is, subject to duty of excise, the controversy is that the tribunal judgment says that since there is no rate of duty (that is the rate of duty is nil), they are not excisable. Even if the goods attract nil rate of duty they can still be excisable provided the other conditions (i), (ii) and (iii) are satisfied. Now, regarding condition (iv), that is, subject to duty of excise, the question is nil duty is a rate of duty or not. It is clear that the tribunal judgment has thought it fit to hold that nil duty is not a rate of duty.
‘Taxable Event’ is that event which on its occurrence creates or attracts the liability to tax. In the context of Central Excise ‘Taxable Event’ is the “manufacture” of goods as per Sec. 3 of Central Excise Act. However, the collection of duty is postponed to the stage of removal of goods as per Rule 4 of the Central Excise Rules, 2002. In Wallace Flour Mills Vs. C.C.EX. [(1989) 44-ELT-598 (SC)], the apex court held that the taxable event for the liability to duty was manufacture of goods but the duty could be levied and collected at any later stage for administrative convenience. Merely because the payment of duty under Rules is postponed to the stage of removal it could not be contended that the removal of goods has become the taxable event for the levy of duty. Besides, it is also worth mentioning that the excisable goods which were chargeable to duty under the tariff at the time of manufacture but were exempted under an exemption notification will be liable to payment of duty if, post manufacture and prior to removal, such exemption is withdrawn. On the other hand, in cases where the goods were outside the purview of the Tariff at the time of manufacture such goods would not be chargeable of duty even though subsequent to manufacture but prior to removal, such goods were brought within the purview of the Tariff or were charged to a duty of excise by means of an amendment to the Tariff.
Case Study:-
UOI Vs. Kirloskar Brothers [(1978) 2-ELT-690 (M.P.)]
This judgment was the beginning of the misunderstanding. The judgment ruled that if there was a full exemption at a certain time, and the exemption is withdrawn later and if the goods are cleared later, then the goods do not have to pay excise duty since the goods were non-excisable earlier when the taxable event (that is, manufacture ) took place. The mistake in this judgment was that it took full exemption as non-excisable. Actually they are quite different. Even when the goods are fully exempt, they continue to be excisable.
CCE, Hyderabad Vs. Vazir Sultan Tobacco Co. [(1996) 83-ELT-3 (SC)]
“The Supreme Court in this case has held that though by virtue of an exemption notification, the rate of duty was nil, this does not mean that they were not excisable goods. They were excisable goods. Nil rate of duty is also a rate of duty”. There is another very important consideration namely that in the tariff we find that the rate of duty is nil in many cases, which are actually manufactured, marketable and excisable.
Examples, 27160000 electrical energy, 09011200 decaffeinated coffee, 19051000 crispbred, 19052000 gingerbread, 19054000 rusks, toasted bread and similar toasted products, 19059030 extruded or expanded products, savoury or salted, 19059040 papad, 19059090 other, 53071090 yarn of jute or of other textile bast fibres of heading 5303. There is also no way to legally distinguish between where the tariff rate is nil and where the exempted rate is nil.
CCE Vs. Polyset Corporation [(2000) 115-ELT-41 (SC)]
In this judgment the Supreme Court has said that the date of manufacture of goods is relevant for determining whether the goods were excisable and as to the rate of duty that the said goods must bear, what is relevant is the date of their clearance.
CCE, Vadodara Vs. Dhiren Chemical Industries [(2002) 139-ELT-3 (SC)]
While considering the eligibility for an exemption notification subject to the payment of appropriate duty on raw materials, the Supreme Court has held that, “An exemption notification that uses the said phrase applies to goods which have been made from duty paid material. In the said phrase, due emphasis must be given to the words ‘has already been paid’. For the purposes of getting the benefit of the exemption under the notification, the goods must be made from raw material on which excise duty has, as a matter of fact, been paid, and has been paid at the ‘appropriate’ or correct rate. Unless the manufacturer has paid the correct amount of excise duty, he is not entitled to the benefit of the exemption notification” (paragraph six of the judgment). In paragraph seven, the Court observed, “Where the raw material is not liable to excise duty or such duty is nil, no excise duty is, as a matter of fact, paid upon it. To goods made out of such material the notification will not apply.” Hence, the argument that “Nil rate of duty is also a rate of duty” is on very fragile ground. A collective reading of the definition under Section 2(d) of the Central Excise Act, 1944, the Supreme Court decision in Dhiren Chemical Industries and the decision of the Customs, Excise and Service Tax Appellate Tribunal in Amaravathi Co-operatives Sugar Mills vs CCE, (2013) suggests that “the rate of duty being nil, the goods are not excisable goods”.
H.M.M. Vs. UOI [(2005) 192-ELT-63 (Del.)]
Where the Delhi High Court held that the duty being on manufacture and the goods having been exempted at the time of manufacture, the goods must be taken as exempted at the time of clearance even though the exemption had been withdrawn by then.
The UOI had not been represented by anybody. So, nobody pointed to the High Court that the issue has already seized to be res integra. That is to say, it had been a settled issue by the judgements in the cases of Wallace Flour Mills and Polyset discussed above.
Amaravathi Co-operatives Sugar Mills versus CCE, Coimbatore, [(2013) 291-ELT-126(Tri-Chennai)]
In this case CESTAT held that “press mud and sludge are specified in the First Schedule of the Central Excise Tariff against headings 23032000 and 23033000 but they are not subject to a duty of excise, as under the rate column the duty of excise is indicated as nil. Hence till such time, no duty is specified in the First Schedule of the Central Excise Tariff, press mud and sludge cannot be considered to be excisable goods”. The judgment, therefore, says that the rate of duty being nil, the goods are not excisable.
Conclusion:-
If the goods were non-excisable when they were manufactured, then they will continue to be non-dutiable at the time of clearance though there may be a duty at that time. But if the goods were just fully exempted, then they will have to pay duty prevailing at the time of clearance. When we take customs and excise tariffs together, then the rates of duty are variously written as nil, blank and free. In effect, all of them mean nil. Some are excisable and some are non-excisable. Animals like cats and dogs are in the excise tariff. The CBEC should form a task force to resolve this confusion.
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